Boockvar’s Portfolio ‘Gut Check’
The following is from Peter Boockvar:
It’s time for a portfolio gut check/Some earnings
If there ever was a time since the GenAI tech trade started to accelerate in 2023 for investors to fully reevaluate their exposure, it is now. As large as the concentration is in this space in the indices, there is thus a large part that is not and that is ripe for opportunities and I’m talking globally. The question of whether the AI CapEx binge slows is not if but when and you can be sure that the stocks exposed to it peak well before the CapEx does. I still believe that from here, the benefits of the incredible technology being created will accrue to the rest of us and not to the infrastructure builders, similar to what we saw with the internet buildout.
My favorite two sectors that we own remain commodity stocks, particularly in energy, precious metals, ag and uranium and also the beaten and battered consumer staples stocks with some of the best dividend yields in the market. As I also believe the fate of the US dollar is in the hands of this AI trade, having international stock and bond exposure I think is important too with a lot of cheap stuff overseas, like in the UK, Brazil, Singapore, Vietnam, China and even France.
As expected, Kevin Warsh speaking in Thailand said nothing market moving and rate hike odds for October are now at just 14% with the December meeting still holding its high likelihood at 88%. While long rates are up today, I still think we’ve seen the peak short term. Longer term, I still expect us to be in a rising rate backdrop.
It is quiet elsewhere so we’ll just jump right to some earnings calls.
Manpower stock got slammed by 16% yesterday after they missed earnings expectations, and from them of note though they didn’t say much on the macro:
“Commercial staffing remained very positive, while professional staffing returned to growth during the quarter.”
In the US, “We saw continued solid demand across consumer goods, notably food manufacturing and logistics, as well as opportunities tied to automation and reshoring, which are driving demand for specialized technical talent.”
They have a French business too and “from what our clients are telling us and from what employers are doing, the labor market remains stable.”
From JB Hunt who slightly missed both earnings estimates while revenue beat and is down pre-market:
The top line jumped by 20% but operating income was only higher by 2%. “At an investor conference in September, we identified three primary cost headwinds this quarter, driver related investments, volatile fuel prices, and higher claims and medical cost. Driver related costs include recruiting, onboarding, training, sign-on bonuses, and targeted wage actions.”
“Capacity remains contrained, operating costs continue to move higher, and supply chains are seeking out providers that can deliver reliable capacity at scale. Most importantly, customers have gained a much clearer understanding of these realities.”
And helping to mitigate the jump in costs, “we’re asking for larger rate increases certainly than what we’ve shown so far… At the end of the day, our pricing has to outpace our inflationary costs or we have to find methods of taking costs out. I think as we went through 2025, we were very effective in our lowering our cost-to-serve initiatives and we saw success…So it is more about price at this point….Margin repair remains a top priority.”
From Prologis, the industrial warehouse owner:
“several long-term trends continue to drive demand for logistics real estate. E-commerce, advanced manufacturing, and the build out of the data center supply chain are all critical to the modern economy. Taken together, we expect demand to remain resilient even in a higher rate environment.”
“On the supply side, the bar for new development is going up. Construction costs are escalating, financing is more expensive, and return requirements are trending higher. That makes projects harder to pencil at today’s rents. All else equal, we expect fewer starts and a more favorable supply environment. That creates an attractive setup for rents.”
“Today, the rents needed to justify new construction have expanded to 27% above current market levels. That leaves meaningful room for rents to grow before new supply makes economic sense. That said, the capital markets backdrop has become more challenging. We think the recent move in rates will slow transaction activity and could put some pressure on values.”
This is what Commercial Metal, the steel maker, said on its end markets on their call:
“Beginning with infrastructure, demand remains elevated. Significant federal and state funding conditions to support a multi year pipeline of projects, and with a substantial portion of available funding yet to be spent, we have strong visibility into future activity.”
“Non-residential construction demand varies by market but remains a source of strength for CMC. Activity related to areas like data centers, power generation, utility infrastructure, semiconductor manufacturing, and institutional markets is solid and the Dodge Momentum Index remains near record levels, suggesting a robust and extensive project pipeline.”
They did mention, not surprisingly, that “residential remains mostly muted.”
